Back to the future as the markets digest the Greek rescue deal

Greek-crisisWhile walking my dog on Saturday, I was accosted on the street by a little girl of about five. ‘Amy Winehouse is dead!’ she announced. ‘Dead!’ she repeated when I failed to evaporate with shock. Here in the UK, the pop star’s death quickly erased the latest act in the rescue of Greece from the headlines, which no doubt tells us something quite disturbing about our priorities and prurience. But it’s the Greek story that’s going to run and run, if the new deal’s reception by fund managers and other commentators is anything to go by. This morning, Moody’s cut Greece’s rating from Caa1 to Ca, joining Fitch in effectively considering Greece to be in default. Moody’s added dark mutterings about the potential negative effects of the Greek rescue package on Greece’s creditors. A primary concern across the board was the ability of Greece – and other peripheral countries – to keep up their side of the bargain. ‘Will Greece have the determination and ability to deliver on its adjustment and privatisation program?’ asked Lombard Odier Investment Managers. ‘Will the global growth environment be supportive enough to allow the periphery to adjust?’ The answer, many will feel, is probably not. And so, amidst the political back-slapping, Dave Chappell, senior fund manager for bonds at Threadneedle, saw fit to remind us of the momentousness of the moment. “The new framework may appease market fears for now, but one must not forget that amongst the fanfare, we are witnessing the first western developed country default in over half a century,” he said. “A more robust growth profile than is currently expected is now key for the prospects of calm returning to the financial markets.” Similarly, JP Morgan Asset Management’s global head of rates for fixed income, David Tan, damned the new deal with faint praise: “Although it is not as aggressive as we would have liked, the plan has a chance of working." A chance of working? Not a silver bullet, then. But, of course, however big a mess the Eurozone may be in, and however shaky some of the underpinning to last week’s deal may look, life goes on, and so it is that fund managers are already looking for ways to play the situation. Nordea took the opportunity to highlight the merits of Nordic bonds on Friday, while Virginine Maisonneuve, head of global and international equities at Schroders, announced a new investment theme: fragmentation in the global village. “Globalisation has led to increasing economic integration and the convergence of regional economies into seemingly homogeneous blocs. However, the financial crisis has halted and in some cases reversed this trend. What we are witnessing now in Europe is the prime example.” Back to the future, then, as we wait to see how Act II of the Greek tragedy unfurls. ©2011 funds europe

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